Pivot Your Business
When used in relation to entrepreneurship, pivot (which generally refers to a shift in strategy) describes the tortured path that most start-ups go through to find the right customer, value proposition, and positioning.
Eric Ries, the creator of the ‘Lean Startup’ methodology, reminds us that pivots imply keeping one foot firmly in place as you shift the other in a new direction. In this way, new ventures process what they have already learned from past success and failure and apply these insights in new areas.
According to one estimate, as many as15-20% of startups pivot from their initial business plan. In some ways, pivoting a company can be like pressing the restart button on your laptop, and it can breathe new life into a failing venture. At the same time, pivoting a business also means abandoning a tremendous amount of invested work.
One common reason to pivot a business is difficulty generating sustainable revenue. Many startups, for instance, operate according to the following model: they first build a user base, and then they determine how to monetize that user base. They might choose a freemium model in the hopes that a certain percentage of their customers will convert to paying users. The average conversion rate for freemium models is 2-5%, so if your organization fails to generate sustainable revenue due to this low industry average, it is likely time to consider pivoting your business direction.
Share your new direction with your team members, your business partners, your customers, etc. In short, clarify this direction with your key stakeholders. This can help you avoid unwanted surprises and confused consumers who may be seeking your original product or service. Consider paying additional attention to early adopters who were passionate about your initial direction – this might involve introducing them to products or services from other companies that offer the same functionalities.
Next, ensure your team is comprised of the correct members who are engaged with the pivot. Pivoting your business likely means changing your mission and/or your vision. If your current team members are not aligned with this new direction, it may be better for both parties to part ways.A loss of confidence in their company is one of the most frequent reasons why people leave their jobs, which is why it is critical to appropriately onboard new staff members.
The pivot can be applied to any element of the business model, without changing the underlying vision. Here are some of the most common pivot elements that Eric and others have noted:
- Customer problem pivot : In this scenario, you use essentially the same product to solve a different problem for the same customer segment. Eric says that Starbucks famously did this pivot when they went from selling coffee beans and espresso makers to brewing drinks in-house.
- Market segment pivot : This means you take your existing product and use it to solve a similar problem for a different set of customers. This may be necessary when you find that consumers aren’t buying your product, but enterprises have a similar problem, with money to spend. Sometimes this is more a marketing change than a product change.
- Technology pivot : Engineers always fight to take advantage of what they have built so far. So the most obvious pivot for them is to repurpose the technology platform, to make it solve a more pressing, more marketable, or just a more solvable problem as you learn from customers.
- Product feature pivot : Here especially, you need to pay close attention to what real customers are doing, rather than your projections of what they should do. It can mean to zoom-in and remove features for focus, or zoom-out to add features for a more holistic solution.
- Revenue model pivot : One pivot is to change your focus from a premium price, customized solution, to a low price commoditized solution. Another common variation worth considering is the move from a one-time product sale to monthly subscription or license fees. Another is the famous razor versus blade strategy.
- Sales channel pivot : Startups with complex new products always seem to start with direct sales, and building their own brand. When they find how expensive and time consuming this is, they need to use what they have learned from customers to consider a distribution channel, ecommerce, white-labeling the product, and strategic partners.
- Product versus services pivot : Sometimes products are too different or too complex to be sold effectively to the customer with the problem. Now is the time for bundling support services with the product, education offerings, or simply making your offering a service that happens to deliver a product at the core.
- Major competitor pivot : What do you do when a major new player or competitor jumps into your space? You can charge ahead blindly, or focus on one of the above pivots to build your differentiation and stay alive.
Get your investors and advisors to do the pivot exercise right along with you, so there are no surprises. Adaptation and dealing with chaos is the key to survival for a startup, and your best competitive edge over large companies.